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Incurred costs: A fixed or moveable feast?

Banyard: Guidance notes in White Book extremely persuasive

Posted by Marc Banyard, a costs lawyer at Litigation Futures Associate The John M Hayes Partnership [1]

How should you treat costs incurred between the date of an initial costs budget and the date on which an updated costs budget has been prepared? Do they fall as incurred costs for the purpose of the updated budget or remain as future costs?

If such costs were retrospectively reclassified as incurred costs for the purposes of the updated budget, it would be possible to exceed the budgeted figures under the original budget with impunity, knowing that by filing an updated budget, such costs would become reclassified as incurred and, owing to the operation of PD3E 7.4, would now be removed from the purview (and censure) of the judge undertaking the budgeting exercise. The same would then fall for scrutiny on detailed assessment.

Equally, by filing an updated budget as late as possible in the litigation process, it might be possible to render all previous budgeting effectively otiose by shifting the great majority of costs into the incurred section.

On the other hand, it could be argued that PD3E 7.4 requires a reclassification of the costs for the intervening period in this manner by stating: “As part of the costs management process, the court may not approve costs incurred before the date of any costs management hearing.”

The court “may not” approve the costs for the intervening period as they have been “incurred before the date of [the second] costs management hearing”, whatever the undesirable ramifications.

This latter approach was preferred by Mr Justice Warby in Yeo v Times Newspapers Ltd [2015] EWHC 2132 (QB), in which he said: “PD3E 7.6 is not an apt vehicle for obtaining the courts approval for costs incurred before the budget.”

Happily this ambiguity appears to have been largely resolved by subsequent amendments to the CPR introduced under the Civil Procedure (Amendment) Rules 2017 (SI 2017/95) with effect from 6 April 2017. This amended the terminology used at CPR 3.15(1), introducing the term ‘budgeted costs’ in preference for the term “budget” to clarify exactly those costs which are within the judge’s purview during the budgeting exercise.

The notes accompanying CPR 3.12 in the current White Book (at 3.12.3) state that ‘budgeted costs’ refer to the costs parties place in the columns headed incurred costs in the first budget they submit in compliance with rule 3.13(1). ‘Budgeted costs’ should now be understood to refer to the costs the parties place in the columns headed estimated costs in that budget.

Any ambiguity is further addressed as the notes continue: “If after the approval of that budget, the party submits a revised budget seeking an increase in respect of any part of it, the costs previously shown in the incurred costs column should remain the same; unless and until the court approves any revision, the costs previously approved in the estimated columns (the budgeted costs) should remain in the estimated columns even if substantial amounts of them have now been incurred.”

Although not a source of law, the guidance notes in the White Book offer an extremely persuasive provenance for any judge dealing with costs management.

On that basis, it can be surmised that costs incurred between the date of the initial and updated budget should remain in the columns for future costs and not be reclassified as incurred.